The principal rule under IFRS is that the:
- presentation,
- disclosure, and
- classification
of items in the financial statements must be consistent from one reporting period to the next (IFRS 18.30).
Changes are permitted only when an entity:
- adopts a new or amended IFRS; or
- determines that another presentation, disclosure or classification would be more appropriate.
An entity may change the presentation, disclosure or classification of items in its financial statements only if the change provides information that is more useful to users of the financial statements. The entity must also be likely to continue using the revised approach so that comparability between reporting periods isn’t impaired. When making such a change, the entity reclassifies its comparative information as described below (IFRS 18.B12).
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Reclassification of comparative information
If an entity changes the:
- presentation,
- disclosure, or
- classification
of items in its financial statements, it must reclassify the comparative amounts unless doing so is impracticable.
The entity must also disclose the following, including for the beginning of the preceding period (IFRS 18.33):
- the nature of the reclassification;
- the amount of each item or class of items reclassified; and
- the reason for the reclassification.
When it is impracticable to reclassify comparative amounts, the entity must disclose the reason why the amounts haven’t been reclassified and the nature of the adjustments that would have been made if reclassification had been practicable.
Third statement of financial position
An entity must present an additional, or “third”, statement of financial position as at the beginning of the preceding period if:
- it applies an accounting policy retrospectively, retrospectively restates items in its financial statements or reclassifies items in its financial statements; and
- the application, restatement or reclassification has a material effect on the statement of financial position as at the beginning of the preceding period.
This requirement doesn’t apply to interim financial statements (IAS 34.BCZ5A).
If a third statement of financial position is presented, there’s no requirement to include a corresponding third column in the notes (IFRS 18.39).
Impracticability of retrospective application or restatement
Constraints on retrospective application or restatement are relevant to the correction of errors, changes in accounting policies and changes in presentation, disclosure or classification.
Under IAS 8.5, retrospective application of a new accounting policy or retrospective restatement to correct an error is impracticable when:
- the effects can’t be determined;
- it would require assumptions about management’s intentions in the relevant period; or
- significant estimates are required and it is impossible to distinguish objectively between information that provides evidence of circumstances existing in the relevant period and other information.
IFRS 18.35 adds that an entity may not have collected data in prior periods in a manner that enables reclassification and that recreating the necessary information may be impracticable.
If it is impracticable to determine the period-specific effects of an error on comparative information for one or more prior periods presented, the entity must restate the opening balances of assets, liabilities and equity for the earliest period for which retrospective restatement is practicable. This may be the current period. If it is impracticable to determine the cumulative effect of an error on all prior periods, the entity must correct the error prospectively from the earliest practicable date (IAS 8.44-45).
Hindsight mustn’t be used when restating prior periods. Assumptions and estimates should therefore reflect the conditions that existed at the relevant time. For example, when correcting an error relating to liabilities for employee sick leave as at 31 December 2019, the subsequent effects of the COVID-19 pandemic should be disregarded (IAS 8.50-53).